Praveen’s Magic Quill

On the leap day, Feb 29, 2008, our Finance Minister P. Chidambaram presented Indian Union Budget 2008. The budget has received mixed reactions. Many applauded him for presenting a well balanced budget and as always expected, the opposition parties started crying that it is a populist budget, aimed at winning votes. Catch the Highlights of the entire budget here.

I am not an expert at this, but I can see that the FM has done a good job of balancing the economy keeping in mind both the slowing growth rate and the upcoming elections. He has laid strong emphasis on social sector, agriculture, and infrastructure. He has tried to spread the fruits of economic reforms to the neglected parts of the country.

When I read The Hindu yesterday, Four Proposals caught my eyes:

1. The first thing that is going to impact us (to-be-fresher-soon) is the Income Tax. I am quite pleased that the threshold limit of Income Tax exemption has been increased by around Rs.40, 000, thus giving us a relief of around Rs.4, 000.

Applicable Tax Rates:

(i) For males below 65 years:

(ii) For females below 65 years:

So, this is gonna boost our yearly savings a bit. For example, if someone is gonna earn 2.5Lakhs per annum, after deducting certain basket of allowances and calculating tax from the taxable income, the resultant figures will be of the order of less than Rs.4000 per annum! And you have taken up LIC or if you are paying medical insurance premium for your parents, you may well be totally exempted from paying any tax! Thus, I guess that this budget is one of the best ever seen by individual taxpayers!

2. The second proposal is the one that seems to have captured the attention of every single journalist and politician in the country! The Massive waiver of loans obtained by farmers! The PSU and Regional Rural Banks have been asked to offer debt waiver on all agricultural loans disbursed upto March 2007 and due until the end of December 2007. The total value of relief to be offered to farmers is estimated at Rs.60, 000 Crore!

I have noted that a huge number of people (including my friend Prashanth) seem to laud this proposal as the best! Don’t you think 60,000 crores is a bit too much! Yes, I accept that a reasonable waiver of loans was the need of the hour taking into account the innumerous farmer suicides, but 60,000 Crores??? Gosh, that’s far away from being reasonable. The Big question is “Who is gonna bear the entire amount???” Will this affect the public sector banks by having to write off the debt? Moreover, won’t this become a habit in the future? Won’t the farmers begin to expect such a loan waiver every 5 years (That is every Election Year Budget)?

I personally feel that they should have given a loan waiver of half the amount, and should have spent the remaining in scientific research and other methodologies to find ways to prevent recurrences of drought and various other reasons responsible for the suicides. At the moment, it’s a bit of a deserving victory for the 40 million Indian Farmers, but for my above asked questions, I guess, time will have to answer.

3. The budget has also been a big Hurray for the Indian automobile sector and customers alike. Cars and two-wheelers are expected to become cheaper with excise cuts on both. Some of the highlights of the 2008 Budget pertaining to the auto-industry are:

a. Excise duty on small cars reduced from 16% to 12% (has been earlier reduced from 24%)

b. Excise duty on hybrid cars reduced from 24% to 14%

c. Excise duty on electric cars reduced to 0%

d. Excise duty on two wheelers & three-wheelers reduced from 16% to 12%

e. Excise duty on buses and their chassis reduced from 16% to 12%

Incentives through excise rate cut on Hybrid & Electric car will help to promote these environment friendly vehicles. Also, most small car and bike manufacturers have already reduced prices including Tata, Maruti and Hyundai. Now this means that small cars would now be more affordable. So, you can expect more traffic on your way to college/office! And when the Tata Nano comes out (which will be cheaper due to the excise cut) you can imagine how crazy the city traffic would get!

4. Excise Duty on packaged software is being increased from 8% to 12%. This means that games and softwares will be more expensive and thereby giving a boost to the already wonderfully-thriving-piracy. It appears that the service tax on customized software is being increased to bring it on par with IT services, and consequently, tax on packaged software is being increased to bring it on par with customized software. Now, I feel that this is likely to slowdown the IT usage in the domestic sector.

Leave your comments about my view and your views about the budget!